On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:Multiple choice question.Interest Revenue for $200.Interest Receivable for $200.Cash for $10,000.Note Receivable for $10,200.
Question
On March 14, Teal Co. accepted a 120-day, 6% note in the amount of 200.Interest Receivable for 10,000.Note Receivable for $10,200.
Solution
The correct answer is: Note Receivable for $10,200.
Here's the step-by-step explanation:
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First, calculate the interest on the note. The formula for calculating interest is Principal x Rate x Time. In this case, the principal is 10,000 x 0.06 x 120/360 = $200.
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The total amount due on the note is the principal plus the interest, which is 200 = $10,200.
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When AZC pays the note in full, Teal would debit (increase) Cash for the total amount received, which is $10,200.
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At the same time, Teal would credit (decrease) Note Receivable for the same amount, which is $10,200. This is because the note has been paid and is no longer an asset to Teal.
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Therefore, the correct answer is "Note Receivable for $10,200."
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